(Note from John Ringgold, Broker at Coldwell Banker Griffith & Blair – It looks like mortgage rates my be rising in the near future. This information may be a bit dry and doesn’t affect only Topeka real estate but the national real estate market. Make sure you read the “What does this data mean” section)
Lawrence Yun, Chief Economist for the National Association of REALTORS
Mortgage Rates
According to Bankrate.com this Monday the average 30-year fixed rate is being quoted at 4.98 percent. That is higher than the weekly survey from Freddie Mac and from Bankrate’s daily figures of the past 3 weeks, which had been right near the 4.8 percent range. The 20 basis point rise is minor, but nonetheless signals that the mortgage rates, despite heavy Federal Reserve meddling, can still rise.
The 10-year Treasury yield is above 4.2 percent and reached 4.3 percent at the end of last week. It had been under 4 percent for most of 2009. Because mortgage rates are priced off of the 10-year Treasury, the rise in government borrowing costs puts upward pressure on mortgage rates.
Oil Price
Oil prices have been moving up as well. Up from about $50 per barrel, the price reached close to $60 last week.
Rising energy prices will lead to higher headline inflation figures in a few months. The core inflation (excluding energy and food prices) is likely to trend down because of excess slack in the economy. However, the headline figure could dominate the discussion about whether the U.S. is headed for an inflationary or deflationary period as we move into 2010.
Interest rates always rise when inflation expectations rise. The recent rise in the Treasury could partly be reflecting potential inflationary pressure. There is absolutely no inflationary pressure in 2009 (in fact the NAR forecast is for an 0.8 percent decline in the consumer price index in 2009), but that does not mean we will not face inflation in a few years given that so much printed money has been put into the economy.
What does today’s data mean for REALTORS® and consumers?
Do not think that mortgage rates will remain under 5 percent because of heavy government involvement. The rates may rise or fall from the current levels. Despite all the efforts by the Federal Reserve, there is no guarantee that mortgage rates will fall, because bond investors can easily negate that policy prescription if inflation is expected.
If oil prices rise to $70 or $80 per barrel, then mortgage rates could be rising. Energy price movements could be the catalysts in where the consumer prices will go in 2010 and beyond.
Daily Forecast Update
NAR’s monthly official forecast as of May 4th
GDP Q2: – 1.7%
GDP Q3: +0.2%
GDP Q4: +0.8%
Unemployment rate by the end of 2009: 10.5%
Average 30-year fixed mortgage rate by the end of 2009: 5.3%
